updated 3/8/2004 9:34:05 AM ET 2004-03-08T14:34:05

The former head of the Royal Dutch/Shell Group was warned two years ago that the company's reserves were overestimated, The Wall Street Journal reported Monday.

The newspaper, citing unidentified sources, said Sir Philip Watts, who resigned as chairman last week, and other senior managers were warned by executives early in 2002 that the company's accounting of oil and natural gas reserves appeared to be inconsistent with U.S. Securities and Exchange Commission guidelines.

Shell declined to comment on the report.

"We're not privy to the work of the Group Audit Committee's review team and it would be inappropriate for us to comment or speculate on their work," said Shell spokesman Matt Samuel, referring to the team probing the reserve revisions.

Shell announced on Jan. 9 that it was reclassifying 20 percent of its proved reserves to less certain, unproved categories.

That announcement prompted the SEC to launch a formal investigation.

Last week, Shell's announced that Watts had resigned "by mutual consent," and so had Walter van de Vijver, Shell's head of exploration and production since 2001.

The Wall Street Journal said the memo circulated two years ago to Watts and other executives suggested that reserves might need to be downgraded by a billion barrels.

In January, Shell cut its proven reserves by 3.9 billion barrels.

Copyright 2004 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

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